INVESTMENT ADVISER
FIRST SECURITY INVESTMENT
MANAGEMENT, INC.
61 South Main Street
Salt Lake City, Utah 84111
AQUILA MANAGEMENT CORPORATION
380 Madison Avenue, Suite 2300
New York, New York 10017
BOARD OF TRUSTEES
Lacy B. Herrmann, Chairman
Philip E. Albrecht
Gary C. Cornia
William L. Ensign
D. George Harris
Anne J. Mills
R. Thayne Robson
OFFICERS
Lacy B. Herrmann, President
Jerry G. McGrew, Vice President
Kimball L. Young, Vice President
Rose F. Marotta, Chief Financial Officer
Richard F. West, Treasurer
Edward M.W. Hines, Secretary
DISTRIBUTOR
AQUILA DISTRIBUTORS, INC.
380 Madison Avenue, Suite 2300
New York, New York 10017
CUSTODIAN
BANK ONE TRUST COMPANY, N.A.
100 East Broad Street
Columbus, Ohio 43271
TRANSFER AND SHAREHOLDER SERVICING AGENT
ADMINISTRATIVE DATA
MANAGEMENT CORP.
581 Main Street
Woodbridge, New Jersey 07095-1198
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
345 Park Avenue
New York, New York 10154
Further information is contained in the Prospectus,
which must precede or accompany this report.
(TAX-FREE FUND FOR UTAH LOGO)
SEMI-ANNUAL
REPORT
DECEMBER 31, 1996
(LOGO OF AQUILA FUNDS EAGLE HEAD)
TAX-FREE FUND FOR
UTAH
A TAX-FREE INCOME INVESTMENT
(AQUILA TAX-FREE FUND FOR UTAH LOGO)
ONE OF THE
AQUILASM GROUP OF FUNDS
<PAGE>
(TAX-FREE FUND FOR UTAH LOGO)
TAX-FREE FUND FOR UTAH
SEMI-ANNUAL REPORT
"THE VALUE OF STEADFASTNESS"
February 18, 1997
Dear Investor:
Most of us have heard, at one time or another, the story of the tortoise
and the hare. With respect to your investment in Tax-Free Fund For Utah, this
old adage, detailing the virtue of steadfastness, speaks volumes. If the
finish line you are seeking to cross is one of capital preservation and
double tax-free income, then an investment which performs much like the
tortoise just might "win the race."
THE CALL OF THE STOCK MARKET
As I am sure you will agree, recent years have been banner ones for the
stock market. The spectacular price increases experienced have made the
appeal of investing in equity securities extremely powerful and, at times,
almost irresistible.
If it were possible to know in advance just what and when to buy or sell in
order to maximize profit, then constantly switching your investment vehicle,
trying to capture the latest trend, would be uncomplicated.
Unfortunately, "timing" the market, with any degree of consistency, is near
impossible. We have generally found that, for the average investor, switching
continuously from one security to another in the management of his/her
investment portfolio tends to be a fruitless, often imprudent, exercise. With
the degree of volatility inherent in the equity markets, missing an upturn or
downturn could result in a disastrous loss of invested principal.
PROUD TO BE A TORTOISE
Our various survey results indicate that a substantial portion of investors
in Tax-Free Fund For Utah are retirees or pre-retirees who are concerned
about capital preservation. Accordingly, staying on track with your
investment in the Fund could well prove to be the most appropriate course to
follow. Although equity investments can be rewarding for a portion of one's
capital, it is still critical to keep firmly in mind your overall investment
goal and not get disproportionately distracted by the dazzle of other
investments.
It is no great secret that municipal bonds, such as those in which the Fund
invests, are generally not exciting investments. Unlike stocks, they do not
experience abrupt, dramatic highs. However, it must be kept in mind that
municipal bonds also do not experience the dumbfounding lows of stocks.
Municipal bond funds just plod along from year to year, much like the
tortoise, producing consistent double tax-free results for shareholders.
While being a tortoise may not be as glamorous as being a hare, this should
not represent a cause for concern. The end result is really what counts - not
how you got there, but that you got there at all.
<PAGE>
CAPITAL PRESERVATION STRATEGIES
Although capital preservation is not guaranteed, the Fund does take some
very deliberate steps to ensure that there will be minimal volatility in
share price over a reasonable time frame.
The Fund's basic philosophy is "don't put all your eggs in one basket."
And, when you choose the eggs for that basket, choose only quality ones.
DIVERSIFICATION is a key stability tool used in the construction of the
Fund's investment portfolio. At year-end 1996, over 60 separate municipal
issues were represented in the Fund's portfolio. Having such a breadth of
participation helps to ensure against any significant loss of principal by
the Fund in the remote event anything ever did go wrong with a particular
issuer. Such diversification also enables the Fund to participate in
financing many different vital public purpose projects in numerous
communities throughout Utah, thereby benefitting residents of the entire
state.
We have found from experience that sticking with QUALITY is best in the
long run. Therefore, investments in the Fund are specifically limited to
only the top four credit ratings, or equivalent, of the nine assignable to
municipal securities by nationally-known credit rating services. At December
31, 1996, 97.6% of the portfolio was comprised of the top three credit
ratings - AAA, AA, and A.
Emphasis is also placed on having A SPREAD OF MATURITIES in the Fund's
investment portfolio. As you probably are aware, short term maturities tend
to have very little price fluctuation, but produce a lesser rate of return
than longer maturity securities. Conversely, long-term maturities produce a
higher return level, but have a much higher price volatility factor than
shorter-term issues since they reflect the risks associated with the
unpredictability of future events and the potential interest rate changes
over the extended life of the municipal bond.
By creating a blend of maturities, ranging from under one year to over 20
years in length, the Fund attempts to provide you with a satisfactory level
of return without subjecting the share price to excessive swings as interest
rates move up and down. Thus, the current average maturity of the Fund's
portfolio is the relatively intermediate term of 14 years.
The Fund's Investment Adviser, First Security Investment Management, Inc.,
examines the above elements very carefully when selecting each individual
"egg" for your basket of investments in order to obtain the most appropriate
fit. Such careful attention seeks to provide protection for shareholders'
capital and promote stability.
TAX-FREE RATE OF RETURN
What many investors sometime forget is that while the level of income from
the Fund may seem unimpressive on the surface, it is DOUBLE TAX-FREE - free
of both regular Federal and State of Utah income taxes. When the rate of
return achieved by the Fund is converted into a taxable equivalent rate, the
outcome is generally quite an eye-opener.
The following chart shows the average annualized level of DOUBLE TAX-FREE
income return distributed to shareholders from January 1, 1996 to December
31, 1996, as measured against the maximum public offering price.** It
additionally illustrates the rate of taxable income return one would have had
to earn in order to equate to the DOUBLE TAX-FREE income return generated by
the Fund.
No matter which Federal income tax bracket applies, you can readily see
that there is quite a difference between the TAXABLE and the DOUBLE TAX-FREE
return levels.
<PAGE>
<TABLE>
<CAPTION>
TAX-FREE FUND FOR UTAH'S DOUBLE TAX-FREE
DISTRIBUTION RATE AS COMPARED TO THE
TAXABLE EQUIVALENT RATE AN INVESTOR WOULD
HAVE TO EARN AT VARIOUS TAX BRACKETS
Tax Bracket Taxable Equivalent Rate Double Tax-Free Distribution Rate
<S> <C> <C>
28% 7.81% 5.23%
31% 8.26% 5.23%
36% 8.94% 5.23%
39.6% 9.50% 5.23%
</TABLE>
INVESTING WITH PRIDE IN UTAH'S FUTURE
In addition to providing DOUBLE TAX-FREE income to shareholders, Tax-Free
Fund For Utah also affords investors the opportunity of investing with pride
in Utah's future.
The municipal bonds purchased through investments in the Fund help finance
vital public-purpose projects throughout the communities of Utah. In fact, on
any typical day, numerous shareholders most likely will come into contact
with at least one project financed by bonds in the Fund's investment
portfolio. Tax-Free Fund For Utah helps to finance important infrastructure
developments such as schools, roads, airports, hospitals, etc. These are all
projects that you can reach out and touch - ones in which you can be proud
that they will ultimately enhance the quality of life in Utah.
OUR PLEDGE TO YOU
Management of Tax-Free Fund For Utah values the confidence you have placed
in us. You can be assured that we will steadfastly strive to help you cross
the finish line of your investment goal.
Sincerely,
/s/ Lacy B. Herrmann
Lacy B. Herrmann
President and Chairman
of the Board of Trustees
**The performance shown represents that of Class A shares. Such performance
data quoted represents past performance and is not indicative of future
results. The investment return and principal value of an investment will
fluctuate so that an investor's shares, when redeemed, may be worth more or
less than their original cost. The Fund's average annual total return as of
12/31/96 for the past one-year period was 4.21% and since inception was
6.60%. These returns do not take into consideration the maximum sales charge
of 4% or subsidization or waiver of management fees and certain expenses.
Returns would be less if sales charges, management fees and expenses were
applied. As of 12/31/96, the Fund's 30-day SEC yield was 4.96%.
<PAGE>
TAX-FREE FUND FOR UTAH
STATEMENT OF INVESTMENTS
DECEMBER 31, 1996 (unaudited)
<TABLE>
<CAPTION>
RATING
FACE MOODY'S/
AMOUNT GENERAL OBLIGATION BONDS (32.5%) S&P VALUE
<C> <S> <C> <C>
City and County General
Obligation Bonds (4.7%)
$ 125,000 Blanding City, Utah, San Juan
County, Natural Gas Project
G.O., Series 1994,
5.800% 07/15/13 Baa/NR $ 125,938
290,000 Central Utah Water Conservancy
District, Limited Tax G.O.,
Series 1993, MBIA Insured
5.100% 04/01/07 Aaa/AAA 290,362
235,000 Salt Lake County, Utah Service
Area G.O.,
5.350%, 12/15/06 A/NR 240,581
100,000 Salt Lake County, Utah G.O.,
6.375%, 06/15/11 Aaa/NR 105,750
290,000 Sandy City, Utah Refunding
Public Building G.O.,
6.700%, 12/15/10 A1/NR 316,463
300,000 Weber County, Utah Unlimited
Tax G.O.,
FGIC Insured, 5.625%, 1/15/11 Aaa/AAA 304,500
1,383,594
School District General
Obligation Bonds (27.3%)
535,000 Beaver County, Utah School
District G.O., Series 1994,
AMBAC Insured,
5.200%, 12/15/12 Aaa/AAA 514,938
510,000 Cache County, Utah School
District G.O., Series A,
AMBAC Insured,
5.750%, 06/15/08 Aaa/AAA 529,762
700,000 Cache County, Utah School
District G.O., Series A,
AMBAC Insured,
5.800%, 06/15/09 Aaa/AAA 725,375
1,000,000 Cache County, Utah School
District G.O., Series A,
AMBAC Insured,
5.900%, 06/15/13 Aaa/AAA 1,030,000
595,000 Carbon County, Utah School
District G.O., Series 1993,
MBIA Insured,
5.450%, 06/15/10 Aaa/AAA 599,462
1,000,000 Davis County, Utah School
District G.O., MBIA Insured,
5.850%, 06/01/09 Aaa/AAA 1,043,750
500,000 Jordan, Utah School District
G.O.,
5.900%, 06/15/04 Aa/NR 532,500
665,000 Jordan, Utah School District
G.O.,
6.000%, 06/15/05 Aa/NR 709,888
235,000 Jordan, Utah School District
G.O.,
6.100%, 06/15/07 Aa/NR 250,275
1,000,000 Nebo County, Utah School
District G.O, FGIC Insured,
5.750%, 06/15/11 Aaa/AAA 1,026,250
770,000 Nebo County, Utah School
District, FGIC Insured,
6.00%, 06/15/18 Aaa/AAA 795,025
250,000 Washington County, Utah
School District G.O,
FGIC Insured,
5.000%, 09/01/06 Aaa/AAA 251,250
8,008,475
<PAGE>
Recreational Facilities General
Obligation Bonds (.5%)
150,000 West Bountiful City, Utah Golf
Course G.O,
6.350%, 09/01/13 Baa/NR 156,750
156,750
Total General Obligation Bonds 9,548,819
REVENUE BONDS (65.9%)
Education Revenue Bonds (6.9%)
200,000 University of Utah Revenue
Refunding, (Biology Research
Facilities), MBIA Insured,
5.500%, 04/01/11 Aaa/AAA 202,500
190,000 Utah State Board of Regents,
Salt Lake Community College,
AMBAC Insured,
6.000%, 06/01/05 Aaa/AAA 201,163
300,000 Utah State Board of Regents,
Student Loan, Series C,
5.450%, 05/01/05 Aaa/NR 305,625
150,000 Utah State Board of Regents,
Utah State University
Revenue Refunding Student
Building Fees, Series 1993A,
AMBAC Insured,
5.800%, 12/01/05 Aaa/AAA 157,500
500,000 Utah State Board of Regents,
Utah State University
Revenue Refunding Student
Building Fees, Series 1994B,
MBIA Insured,
5.750%, 12/01/07 Aaa/AAA 520,625
300,000 Utah State University
Agricultural Education
Facilities, MBIA Insured,
6.150%, 12/01/14 Aaa/AAA 313,125
300,000 Weber County, Utah School
District, MBIA Insured,
6.000%, 06/15/07 Aaa/AAA 315,000
2,015,538
Hospital Revenue Bonds (2.1%)
250,000 Murray City, Utah Hospital
Revenue, Intermountain
Health Care, AMBAC Insured,
5.200%, 05/15/08 Aaa/AAA 248,438
250,000 Salt Lake City, Utah Hospital
Revenue, Intermountain Health
Care,
8.000%, 05/15/07 NR/AAA 267,188
100,000 Utah State Municipal Finance
Corp., University of Utah
Hospital,
6.750%, 05/15/04 NR/AA- 108,125
623,751
Industrial Development
Revenue Bonds (1.3%)
120,000 Salt Lake County, Utah
Industrial Development,
Plaza 5400,
6.200%, 09/01/12 NR/AA+ 126,450
<PAGE>
250,000 Sandy City, Utah Industrial
Development, H Shirl
Wright Project,
6.125%, 08/01/16 NR/AAA 256,250
382,700
Lease Revenue Bonds (19.0%)
600,000 Layton City, Utah Municipal
Building Authority,
MBIA Insured,
5.700%, 08/15/08 Aaa/AAA 614,250
200,000 Ogden City, Utah Municipal
Building Authority,
Series 1992,
6.800%, 12/15/08 NR/NR* 209,000
200,000 Ogden City, Utah Municipal
Building Authority,
Series 1992,
7.000%, 12/15/12 NR/NR* 207,750
600,000 Salt Lake City, Utah Municipal
Building Authority,
Series 1993A,
5.750%, 10/15/08 A1/A+ 616,500
1,000,000 Salt Lake City, Utah Municipal
Building Authority,
6.000%, 10/15/14 A1/A+ 1,020,000
1,000,000 Salt Lake County, Utah Municipal
Building Authority, Series
1994A, MBIA Insured
6.050%, 10/01/08 Aaa/AAA 1,051,250
475,000 Utah Municipal Building
Authority, Logan Municipal
Building, Series 1993,
5.900%, 04/01/11 A/NR 483,906
685,000 Utah State Building Ownership
Authority, Series A,
5.750%, 08/15/07 Aa/AA 703,837
350,000 Utah State Building Ownership
Authority,
5.750%, 08/15/08 Aa/AA 357,875
315,000 West Valley City, Utah
Municipal Building Authority,
Series 1993, MBIA Insured
6.000%, 01/15/10 Aaa/AAA 325,631
5,589,999
Mortgage Revenue Bonds (6.7%)
270,000 Utah State Housing Finance
Agency, Single Family Housing
Mortgage Revenue, Series E-1,
5.850%, 07/01/13 Aa/NR 271,350
215,000 Utah State Housing Finance
Agency, Single Family Housing
Mortgage Revenue, Series 1994B,
6.200%, 07/01/06 A1/NR 223,063
935,000 Utah State Housing Finance
Agency, Single Family Housing
Mortgage Revenue, Series E-1,
6.600%, 07/01/11 NR/AA 971,231
485,000 Utah State Housing Finance
Agency, Single Family Housing
Mortgage Revenue, Series 1994C,
6.350%, 07/01/11 Aa/NR 501,975
1,967,619
<PAGE>
Pollution Control Revenue
Bonds (1.3%)
350,000 Box Elder County Pollution
Control Revenue, Nucor
Corporation Project,
6.900%, 05/15/17 NR/AA- 377,562
377,562
Transportation Revenue Bonds
(4.0%)
875,000 Salt Lake City, Utah Airport
Revenue, FGIC Insured,
Series B,
5.875%, 12/01/12 Aaa/AAA 897,969
285,000 Salt Lake City, Utah Airport
Revenue, FGIC Insured,
Series B,
5.875%, 12/01/18 Aaa/AAA 289,631
1,187,600
Water and Sewer Revenue Bonds
(11.3%)
270,000 St. George, Utah Sewer Revenue,
AMBAC Insured,
5.500%, 06/15/07 Aaa/AAA 275,400
100,000 St. George, Utah Water Revenue,
Series A, FGIC Insured,
7.050%, 06/01/06 Aaa/AAA 101,441
300,000 St. George, Utah Water Revenue,
FGIC Insured,
5.375%, 06/01/16 Aaa/AAA 292,500
500,000 Salt Lake City, Utah Water And
Sewer Revenue, AMBAC Insured,
5.750%, 02/01/13 Aaa/AAA 506,250
525,000 Salt Lake County, Utah Water &
Sewer Revenue, AMBAC Insured,
6.00%, 02/01/10 Aaa/AAA 547,312
300,000 Salt Lake County, Utah Water &
Sewer Revenue AMBAC Insured,
5.100%, 10/01/08 Aaa/AAA 295,875
290,000 Salt Lake County Utah
Conservancy District Revenue,
Series A, AMBAC Insured,
5.350%, 10/01/18 Aaa/AAA 280,575
800,000 Timpanagos, Utah Water & Sewer
Revenue, Series A, AMBAC
Insured,
6.00%, 06/01/16 Aaa/AAA 827,000
200,000 Timpanagos, Utah Water & Sewer
Revenue, Series A, AMBAC
Insured,
5.90%, 06/01/11 Aaa/AAA 207,750
3,334,103
Utility Revenue Bonds (13.3%)
400,000 Provo City, Utah Energy
Systems Revenue,
MBIA Insured, Series A,
5.400%, 11/15/05 Aaa/AAA 413,500
500,000 Provo City, Utah Energy
Systems Revenue,
MBIA Insured, Series 1993A,
5.600%, 11/15/07 Aaa/AAA 514,375
790,000 Utah Association Municipal
Power Systems Revenue,
5.250%, 12/01/09 NR/A- 775,188
<PAGE>
695,000 Utah State Municipal Power
Agency, Electric Systems
Revenue, FGIC Insured,
5.500%, 07/01/10 Aaa/AAA $ 707,162
650,000 Utah State Municipal Power
Agency, Electric Systems
Revenue, FGIC Insured,
5.500%, 07/01/11 Aaa/AAA 656,625
875,000 Utah State Municipal Power
Agency, Electric Systems
Revenue, FGIC Insured,
5.250%, 07/01/18 Aaa/AAA 841,094
3,907,944
Total Revenue Bonds 19,386,816
Total Investments - 98.4%
(Cost $28,178,202**) 28,935,635
Other assets in excess of
liabilities - 1.6% 471,356
Net Assets - 100% $ 29,406,991
<FN>
* Any security not rated must be determined by the Investment Adviser to
have sufficient quality to be ranked in the top four ratings if a credit
rating were to be assigned by a rating service.
</FN>
<FN>
** Cost for Federal tax purposes is identical.
</FN>
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TAX-FREE FUND FOR UTAH
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Investments at value (identified cost - $28,178,202) $ 28,935,635
Cash 93,511
Interest receivable 341,127
Due from Administrator for reimbursement of expenses 79,027
Receivable for Fund shares sold 1,420
Other assets 15,100
Total assets 29,465,820
LIABILITIES
Dividends payable 17,245
Distribution fees payable 17,077
Payable for Fund shares redeemed 13,147
Adviser and Administrator fees payable 6,414
Accrued expenses 4,946
Total liabilities 58,829
NET ASSETS $ 29,406,991
Net Assets consist of:
Capital Stock - Authorized an unlimited number
of shares, par value $.01 per share $ 29,652
Additional paid-in capital 29,143,076
Accumulated net loss on investments (523,170)
Net unrealized appreciation on investments 757,433
$ 29,406,991
CLASS A
Net Assets $ 29,389,905
Capital shares outstanding 2,963,437
Net asset value and redemption price per share $ 9.92
Offering price per share (100/96 of $9.92 adjusted
to nearest cent) $ 10.33
CLASS C
Net Assets $ 16,980
Capital shares outstanding 1,712
Net asset value and offering price per share $ 9.92
Redemption price per share (*varies by length of
time shares are held) $ *
CLASS Y
Net Assets $ 106
Capital shares outstanding 11
Net asset value, offering and redemption price per share $ 9.92
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TAX-FREE FUND FOR UTAH
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1996 (UNAUDITED)
<TABLE>
<S> <C> <C>
INVESTMENT INCOME:
Interest income $ 824,143
Expenses:
Investment Adviser fees (note B) $ 34,038
Administrator fees (note B) 39,936
Distribution fees (note B) 29,586
Transfer and shareholder servicing agent fees 18,000
Legal fees 16,000
Shareholders' reports and proxy statements 15,000
Audit and accounting fees 10,000
Trustees' fees and expenses 8,000
Registration fees and dues 3,000
Custodian fees (note F) 2,347
Insurance 500
Miscellaneous 11,176
187,583
Investment Adviser fees waived (note B) (25,169)
Administrator fees waived (note B) (29,588)
Reimbursement of expenses by Administrator
(note B) (90,539)
Expenses paid indirectly (note F) (2,347)
Net expenses 39,940
Net investment income 784,203
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized loss from securities transactions (416)
Change in unrealized appreciation on investments 588,932
Net realized and unrealized gain on investments 588,516
Net increase in net assets resulting from
operations $ 1,372,719
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TAX-FREE FUND FOR UTAH
STATEMENTS OF CHANGES IN NET ASSETS
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1996 June 30, 1996
<S> <C> <C>
OPERATIONS:
Net investment income $ 784,203 $ 1,565,842
Net realized loss from securities
transactions (416) (46,905)
Change in unrealized appreciation on
investments 588,932 442,737
Change in net assets from operations 1,372,719 1,961,674
DISTRIBUTIONS TO SHAREHOLDERS (note E):
Class A Shares:
Net investment income (784,182) (1,565,842)
Distributions in excess of net
investment income (9,015) -
Net realized gain on investme - -
Class C Shares:
Net investment income (107) -
Distributions in excess of net
investment income (1) -
Net realized gain on investments - -
Class Y Shares:
Net investment income (4) -
Distributions in excess of net
investment income - -
Net realized gain on investments - -
Change in net assets from distributions (793,309) (1,565,842)
CAPITAL SHARE TRANSACTIONS (note G):
Proceeds from shares sold 1,707,120 3,729,976
Reinvested dividends and distributions 461,839 887,407
Cost of shares redeemed (2,222,233) (3,668,372)
Change in net assets from capital
share transactions (53,274) 949,011
Change in net assets 526,136 1,344,843
NET ASSETS:
Beginning of period 28,880,855 27,536,012
End of period $ 29,406,991 $ 28,880,855
</TABLE>
See accompanying notes to financial statements.
<PAGE>
TAX-FREE FUND FOR UTAH
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Tax-Free Fund For Utah (the "Fund"), a non-diversified, open-end
investment company, was organized on December 12, 1990 as a Massachusetts
business trust and commenced operations on July 24, 1992. The Fund is
authorized to issue an unlimited number of shares and, since its inception to
May 21, 1996, offered only one class of shares. On that date, the Fund began
offering two additional classes of shares, Class C and Class Y shares. All
shares outstanding prior to that date were designated as Class A shares and,
as was the case since inception, are sold with a front-payment sales charge
and bear an annual service fee. Class C shares are sold with a level-payment
sales charge with no payment at time of purchase but level service and
distribution fees from date of purchase through a period of six years
thereafter. A contingent deferred sales charge is assessed to any Class C
shareholder who redeems shares of this Class within one year from the date of
purchase. The Class Y shares are only offered to institutions acting for an
investor in a fiduciary, advisory, agency, custodian or similar capacity.
They are not available to individual retail investors. Class Y shares are
sold at net asset value without any sales charge, redemption fees, contingent
deferred sales charge or distribution or service fees. All classes of shares
represent interests in the same portfolio of investments in the Fund and are
identical as to rights and privileges. They differ only with respect to the
effect of sales charges, the distribution and/or service fees borne by the
respective class, expenses specific to each class, voting rights on matters
affecting a single class and the exchange privileges of each class.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles for investment
companies.
(1) PORTFOLIO VALUATION: Municipal securities which have
remaining maturities of more than 60 days are valued
each business day based upon information provided by a nationally prominent
independent pricing service and periodically verified through other pricing
services; in the case of securities for which market quotations are readily
available, securities are valued at the mean of bid and asked quotations and,
in the case of other securities, at fair value determined under procedures
established by and under the general supervision of the Board of Trustees.
Securities which mature in 60 days or less are valued at amortized cost if
their term to maturity at purchase was 60 days or less, or by amortizing
their unrealized appreciation or depreciation on the 61st day prior to
maturity, if their term to maturity at purchase exceeded 60 days.
In Fiscal 1997, the Fund began amortizing bond premium using
the constant yield method. Accordingly, net unrealized appreciation and
additional paid-in capital have been adjusted by equal amounts at the
beginning of the year. This change had no effect on the Fund's net asset
value or distribution policy and conforms to the amortization policy followed
by the Fund for Federal tax purposes.
(2) SECURITIES TRANSACTIONS AND RELATED INVESTMENT INCOME:
Securities transactions are recorded on the trade
date. Realized gains and losses from securities transactions are reported on
the identified cost basis. Interest income is recorded daily on the accrual
basis and is adjusted for amortization of premium and accretion of original
issue discount. Market discount is recognized upon disposition of the
security.
<PAGE>
(3) FEDERAL INCOME TAXES: It is the policy of the Fund to
qualify as a regulated investment company by complying with the provisions
of the Internal Revenue Code applicable to certain investment companies. The
Fund intends to make distributions of income and securities profits
sufficient to relieve it from all, or substantially all, Federal income and
excise taxes.
(4) ALLOCATION OF EXPENSES: Expenses, other than
class-specific expenses, are allocated daily to each class of shares based
on the relative net assets of each class. Class-specific expenses, which
include distribution and service fees and any other items that are
specifically attributed to a particular class, are charged directly to such
class.
(5) USE OF ESTIMATES: The preparation of financial statements
in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the
reported amounts of increases and decreases in net assets from operations
during the reporting period. Actual results could differ from those
estimates.
NOTE B - MANAGEMENT ARRANGEMENTS AND FEES AND OTHER TRANSACTIONS WITH
AFFILIATES:
Management affairs of the Fund are conducted through two separate
management arrangements.
First Security Investment Management, Inc. (the "Adviser"), serves as
Investment Adviser to the Fund. In this role, under an Investment Advisory
Agreement, the Adviser supervises the Fund's investments and provides various
services to the Fund for which it is entitled to receive a fee which is
payable monthly and computed as of the close of business each day at the
annual rate of 0.23 of 1% of the net assets of the Fund.
The Fund also has an Administration Agreement with Aquila Management
Corporation (the "Administrator"), the Fund's founder and sponsor. Under this
Agreement, the Administrator provides all administrative services, other than
those relating to the management of the Fund's investments. These include
providing the office of the Fund and all related services as well as
overseeing the activities of all the various support organizations to the
Fund such as the shareholder servicing agent, custodian, legal counsel,
auditors and distributor and additionally maintaining the Fund's accounting
books and records. For its services, the Administrator is entitled to receive
a fee which is payable monthly and computed as of the close of business each
day at the annual rate of 0.27 of 1% of the net assets of the Fund.
Specific details as to the nature and extent of the services provided by
the Adviser and the Administrator are more fully defined in the Fund's
Prospectus and Statement of Additional Information.
The Adviser and the Administrator each agrees that the above fees shall
be reduced, but not below zero, by an amount equal to its pro-rata portion
(determined on the basis of the respective fees computed as described above)
of the amount, if any, by which the total expenses of the Fund in any fiscal
year, exclusive of taxes, interest and brokerage fees, shall exceed the
lesser of (i) 2.5% of the first $30 million of average annual net assets of
the Fund plus 2% of the next $70 million of such assets and 1.5% of its
average annual net assets in excess of $100 million, or (ii) 25% of the
Fund's total annual investment income. No such reduction in fees was required
during the six months ended December 31, 1996.
<PAGE>
For the six months ended December 31, 1996, the Fund incurred fees under
the Advisory Agreement and Administration Agreement of $34,038 and $39,936
respectively, of which amounts the Adviser and Administrator waived $25,169
and $29,588, respectively. Additionally, the Administrator voluntarily agreed
to reimburse the Fund for other expenses during this period in the amount of
$90,539.
Under a Distribution Agreement, Aquila Distributors, Inc. (the
"Distributor") serves as the exclusive distributor of the Fund's shares.
Through agreements between the Distributor and various broker-dealer firms
("dealers"), the Fund's shares are sold primarily through the facilities of
these dealers having offices within Utah, with the bulk of sales commissions
inuring to such dealers. For the six months ended December 31, 1996, the
Distributor received sales commissions in the amount of $967.
The Fund has adopted a Distribution Plan (the "Plan") pursuant to Rule
12b-1 (the "Rule") under the Investment Company Act of 1940. Under one part
of the Plan, with respect to Class A Shares, the Fund is authorized to make
service fee payments to broker-dealers or others ("Qualified Recipients")
selected by the Distributor, including, but not limited to, any principal
underwriter of the Fund, with which the Distributor has entered into written
agreements contemplated by the Rule and which have rendered assistance in the
distribution and/or retention of the Fund's shares or servicing of
shareholder accounts. The Fund makes payment of this service fee at the
annual rate of 0.20% of the Fund's average net assets represented by Class A
Shares. For the six months ended December 31, 1996, service fees on Class A
Shares amounted to $29,558, of which the Distributor received $891.
Under another part of the Plan, the Fund is authorized to make payments
with respect to Class C Shares to Qualified Recipients which have rendered
assistance in the distribution and/or retention of the Fund's Class C shares
or servicing of shareholder accounts. These payments are made at the annual
rate of 0.75% of the Fund's net assets represented by Class C Shares and for
the six months ended December 31, 1996, amounted to $21, of which the
Distributor received $21.
In addition, under a Shareholder Services Plan, the Fund is authorized to
make service fee payments with respect to Class C Shares to Qualified
Recipients for providing personal services and/or maintenance of shareholder
accounts. These payments are made at the annual rate of 0.25% of the Fund's
net assets represented by Class C Shares and for the six months ended
December 31, 1996, amounted to $7, of which the Distributor received $7.
Specific details about the Plans are more fully defined in the Fund's
Prospectus and Statement of Additional Information.
NOTE C - PURCHASES AND SALES OF SECURITIES:
During the six months ended December 31, 1996, purchases of securities
and proceeds from the sales of securities aggregated $819,729 and $694,789,
respectively.
At December 31, 1996, aggregate gross unrealized appreciation for all
securities in which there is an excess of market value over tax cost amounted
to $822,891 and aggregate gross unrealized depreciation for all securities in
which there is an excess of tax cost over market value amounted to $65,458,
for a net unrealized appreciation of $757,433.
<PAGE>
NOTE D - PORTFOLIO ORIENTATION:
Since the Fund invests principally and may invest entirely in double
tax-free municipal obligations of issuers within Utah, it is subject to
possible risks associated with economic, political, or legal developments or
industrial or regional matters specifically affecting Utah and whatever
effects these may have upon Utah issuers' ability to meet their obligations.
NOTE E - DISTRIBUTIONS:
The Fund declares dividends daily from net investment income and makes
payments monthly in additional shares at the net asset value per share or in
cash, at the shareholder's option. Net realized capital gains, if any, are
distributed annually.
The Fund intends to maintain, to the maximum extent possible, the
tax-exempt status of interest payments received from portfolio municipal
securities in order to allow dividends paid to shareholders from net
investment income to be exempt from regular Federal and State of Utah income
taxes. However, due to differences between financial reporting and Federal
income tax reporting requirements, distributions made by the Fund may not be
the same as the Fund's net investment income, and/or net realized securities
gains. Further, a small portion of the dividends may, under some
circumstances, be subject to ordinary income taxes. Also, annual capital
gains distributions, if any, are taxable.
NOTE F - CUSTODIAN FEES:
The Fund has negotiated an expense offset agreement with its custodian
wherein it receives credit toward the reduction of custodian fees whenever
there are uninvested cash balances. During the six months ended December 31,
1996, the Fund's custodian fees amounted to $2,347, all of which was offset
by such credits. It is the general intention of the Fund to invest, to the
extent practicable, some or all of cash balances in income-producing assets
rather than leave cash on deposit with the custodian.
<PAGE>
NOTE G - CAPITAL SHARE TRANSACTIONS:
Transactions in Capital Shares of the Fund were as follows:
<TABLE>
<CAPTION>
Six Months Ended Year Ended
December 31, 1996 June 30, 1996
Shares Amount Shares Amount
<S> <C> <C> <C> <C>
CLASS A SHARES:
Proceeds from shares sold 174,933 $ 1,690,443 379,526 $ 3,729,776
Reinvested dividends and
distributions 46,882 461,756 90,296 887,407
Cost of shares redeemed (224,957) (2,222,232) (373,822) (3,668,372)
Net change (3,142) $ (70,033) 96,000 $ 948,811
<CAPTION>
Period Ended
June 30, 1996*
Shares Amount
<S> <C> <C> <C> <C>
CLASS C SHARES:
Proceeds from shares sold 1,691 $ 16,677 10 $ 100
Reinvested dividends and
distributions 11 80
Cost of shares redeemed - - - -
Net change 1,702 $ 16,757 10 $ 100
<CAPTION>
Period Ended
June 30, 1996*
Shares Amount
<S> <C> <C> <C> <C>
CLASS Y SHARES:
Proceeds from shares sold - $ - 10 $ 100
Reinvested dividends and
distributions - 2 - -
Cost of shares redeemed - - - -
Net change - $ 2 10 $ 100
<S> <C> <C> <C> <C>
Total transactions in
Fund shares (1,440) $ (53,274) 96,020 $ 949,011
<FN>
* From May 21, 1996 (date of inception) through June 30, 1996.
</FN>
</TABLE>
<PAGE>
TAX-FREE FUND FOR UTAH
FINANCIAL HIGHLIGHTS
(unaudited)
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Class A(1)
Six Months Period(2)
Ended Year Ended June 30 Ended
Dec. 31, 1996 1996 1995 1994 June 30, 1993
<S> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $9.74 $9.59 $9.32 $10.00 $9.60
Income from Investment
Operations:
Net investment income 0.27 0.54 0.55 0.55 0.50
Net gain (loss) on
securities (both
realized and
unrealized) 0.18 0.15 0.27 (0.65) 0.40
Total from Investment
Operations 0.45 0.69 0.82 (0.10) 0.90
Less Distributions:
Dividends from net
investment income (0.27) (0.54) (0.55) (0.55) (0.50)
Distributions from
capital gains - - - (0.03) -
Total Distributions (0.27) (0.54) (0.55) (0.58) (0.50)
Net Asset Value, End
of Period $9.92 $9.74 $9.59 $9.32 $10.00
Total Return (not
reflecting sales
charge) (%) 4.66# 7.17 9.09 (1.09) 9.67#
Ratios/Supplemental
Data
Net Assets, End of
Period ($ thousands) 29,340 28,881 27,536 26,116 12,938
Ratio of Expenses to
Average Net Assets(%) 0.27* 0.19 0.08 0.03 0*
Ratio of Net Investment
Income to Average
Net Assets (%) 5.30* 5.49 5.85 5.58 5.64*
Portfolio Turnover
Rate (%) 2.42 11.15 22.92 27.53 36.52#
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary waiver
of fees, the Administrator's voluntary expense reimbursement and the expense
offset in custodian fees for uninvested cash balances would have been:
<S> <C> <C> <C> <C> <C>
Net Investment
Income ($) 0.22 0.43 0.43 0.40 0.27
Ratio of Expenses to
Average
Net Assets (%) 1.22* 1.30 1.30 1.60 2.67*
Ratio of Net
Investment Income
to Average Net
Assets (%) 4.35* 4.37 4.63 4.00 2.97*
<FN>
(1) Designated as Class A Shares on May 21, 1996.
</FN>
<FN>
(2) From July 24, 1992 (commencement of operations) to June 30, 1993.
</FN>
<FN>
# Not annualized
</FN>
<FN>
* Annualized.
</FN>
</TABLE>
<PAGE>
For a share outstanding throughout each period
<TABLE>
<CAPTION>
Class C(1) Class Y(1)
Six Months Period(2) Six Months Period(2)
Ended Ended Ended Ended
Dec. 31, June 30, Dec. 31, June 30,
1996 1996 1996 1996
<S> <C> <C> <C> <C>
Net Asset Value, Beginning
of Period $9.74 $9.77 $9.74 $9.77
Income from Investment
Operations:
Net investment income 0.23 0.05 0.34 0.06
Net gain (loss) on
securities (both
realized and unrealized) 0.18 (0.03) 0.18 (0.03)
Total from Investment
Operations 0.41 0.02 0.52 0.03
Less Distributions:
Dividends from net
investment income (0.23) (0.05) (0.34) (0.06)
Distributions from
capital gains - - - -
Total Distributions (0.23) (0.05) (0.34) (0.06)
Net Asset Value, End of
Period $9.92 $9.74 $9.92 $9.74
Total Return (not
reflecting sales charge)
(%) 4.30# 0.20# 5.42# 0.29#
Ratios/Supplemental Data
Net Assets, End of
Period ($ thousands) 17 0.1 0.1 0.1
Ratio of Expenses to
Average Net Assets (%) 1.27* 0.14# 0.27* 0.03#
Ratio of Net Investment
Income to Average Net
Assets (%) 4.30* 0.50# 5.30* 0.61#
Portfolio Turnover Rate (%) 2.42 11.15 2.42 11.15
<CAPTION>
Net investment income per share and the ratios of income and expenses to
average net assets without the Adviser's and Administrator's voluntary waiver
of fees, the Administrator's voluntary expense reimbursement and the expense
offset in custodian fees for uninvested cash balances would have been:
<S> <C> <C> <C> <C>
Net Investment Income ($) 0.20 0.04 0.32 0.05
Ratio of Expenses to
Average Net Assets (%) 2.02* 0.23# 1.02* 0.11#
Ratio of Net Investment
Income to Average Net
Assets (%) 3.55* 0.42# 4.55* 0.53#
<FN>
(1) New Class of Shares established on May 21, 1996.
</FN>
<FN>
(2) From May 21, 1996 to June 30, 1996.
</FN>
<FN>
# Not annualized.
</FN>
<FN>
* Annualized.
</FN>
</TABLE>
<PAGE>
REPORT ON THE ANNUAL AND SPECIAL MEETINGS OF SHAREHOLDERS (UNAUDITED)
The Annual Meeting of Shareholders of Tax-Free Fund For Utah (the "Fund")
was held on September 27, 1996.* At the meeting, the following matters were
submitted to a shareholder vote and approved:
(i) the election of Lacy B. Herrmann, Philip E. Albrecht, Gary C. Cornia,
William L. Ensign, D. George Harris, Anne J. Mills, and R. Thayne Robson as
Trustees to hold office until the next annual meeting of the Fund's
shareholders or until his or her successor is duly elected (each Trustee
received at least 20,677,457.03 affirmative votes (98.28%); no more than
362,875.42 votes (1.72%) were withheld for any Trustee), and
(ii) the ratification of the selection of KPMG Peat Marwick LLP as the
Fund's independent auditors for the fiscal year ending June 30, 1997 (votes
for: 20,509,926.19 (97.48%); votes against: 105,991.32 (0.50%); abstentions:
424,414.94 (2.02%); broker non-votes: 0 (0.00%)).
______________________________
* On the record date for this meeting, the holders of 2,964,994 Class A
Shares, 10 Class C Shares and 10 Class Y Shares were outstanding and entitled
to vote representing a total net asset value of $28,819,945.38. The holders
of shares entitled to vote representing a total net asset value of
$21,040,332.45 (73.01%) were present in person or by proxy at the meeting.
